Reflection

♦ If the foreign entity's functional currency is not its books of record (local) or reporting currency, the remeasurement method, also called the historical rate or temporal method, is applied. This method is based on the premise that changes in the exchange rate affect the cash flows and economic well-being of the foreign entity and parent/investor.

♦ The remeasurement gain or loss is recognized as a component of current period earnings.

♦ If the foreign entity's books of record (local) currency is the functional currency (FC), the translation method is applied. This may also be referred to as the current-rate or functional method. It is based on the premise that changes in exchange rates will have no effect on the cash flows or economic well-being of the foreign entity or parent/investor.

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